December 03, 2008

Only deep recession will end high oil prices – GES

According to London based Centre for Global Energy Studies’ monthly oil report dated March 17th 2008, only a deep recession leading to a slowdown in Asian growth will end high oil prices.

The report said that "What needs to happen to bring about a significant weakening in oil prices is a recession in key oil consuming economies, a slowing up of the Chinese economy, more non OPEC supplies and an acknowledgement by Saudi Arabia that the oil market should be supplied with more oil."

The CGES also said that "OPEC appears determined to follow a high price policy, keeping a tight rein on production and although the world needs more oil from the OPEC countries, there is no sign they are willing to supply it."

The CGES said that that OPEC is apparently concerned that over-supply in a weakening market will undermine prices, ignoring the argument that under supply will continue to push prices to levels that will hasten the weakening of the market and erode demand. It added that "OPEC's focus on oil supply in the OECD and the US in particular, is flawed because it is only looking at part of the market and the less important part in terms of demand growth when it takes its output decisions."

The research study predicts that OECD demand for crude oil will fall by some 330,000 barrel per day over the course of 2008 and will continue to drop by 310,000 barrels per day over the course of 2009. In the developing world, oil demand growth is expected to be moderate, at 2.5% or 930,000 barrel per day.